Stocks rose on Friday in volatile trading as traders tried to regain some of the sharp losses from the previous session. The major averages, however, clinched their worst week since March as traders took profits and grew nervous of a resurgence in Covid-19 cases.
The Dow Jones Industrial Average gained 477.37 points, or 1.9%, to finish the day at 25,605.54. The blue-chip index had traded over 800 points higher earlier in the day. The S&P 500 rose 1.31% to 3,041.31 while the Nasdaq Composite added 1% to close at 9,588.81.
For the week, the Dow and S&P 500 lost 5.5% and 4.7%, respectively, while the Nasdaq shed 2.3%. All three notched their worst week since March 20.
The stocks of companies that depend on a successful reopening of the economy rose on Friday with Delta Air Lines up 11.8% and cruise-ling operator Carnival Corp. adding 14.5%.
Those stocks were hit heavily during Thursday's sell-off as investors feared the reopening of the economy could be delayed by a second wave of cases.
"Given the magnitude of the rally, it would shock me if we had a one-day sell-off and that's it," said Morgan Stanley Investment Management's Andrew Slimmon.
"The stocks that are up the most from the lows are still the risk-on, high beta, value, small-cap stocks," Slimmon, who is a managing director and senior portfolio manager at the firm, told CNBC's "Squawk Box Asia" on Friday morning Singapore time. "They're still the big winners and I would suspect that there's more pain to come near-term before the market clears out kind of this excessive speculation that we've seen recently."
Wall Street's fear gauge signaled more wild trading ahead. The Cboe Volatility Index rose to its highest level since April and traded above 43 before moving back below 36 by the closing bell.
The Dow, S&P 500 and Nasdaq on Thursday all recorded their biggest one-day losses since mid-March on Thursday, posting losses of at least 5%.
Wall Street's weekly losses came as data compiled by Johns Hopkins University showed the number of new coronavirus cases has risen in states like Arizona, South Carolina and Texas as they continue their reopening process. Arizona cases have nearly doubled since Memorial Day.
Still, Treasury Secretary Steven Mnuchin told CNBC's Jim Cramer the U.S. can't shut down the economy again. Overall, more than 2 million coronavirus cases have been confirmed in the U.S. along with over 100,000 deaths.
Stocks had been ripping higher prior to this week, as investors cheered the prospects of the economy recovering as states and countries eases quarantine measures.
"We had gone straight up more than 30% without a real sell-off, so you're due for one, and I don't think it's the worst thing in the world," said JJ Kinahan, chief market strategist at TD Ameritrade. "As more states get back, the question becomes: Are they going to ramp up fast enough to please Wall Street? What you're seeing is it'll be hard to do that."
The S&P 500 and Dow remain more than 37% above the intraday lows reached on March 23. Most of those gains have been driven by stocks that would benefit from the economy reopening, including airlines, cruise lines and retailers.
"Some of these stocks may have gotten ahead of their skis," said Kinahan. "When you see some of the airlines being priced at the levels they were before this all started when they say they're going to do 60% of their business just doesn't make sense."
The decline this week at one point pushed the S&P 500 back below its 200-day moving average, a widely followed level by traders. It managed to re-top the moving average by the end of the week.
"Once the S&P 500 crossed above the 200-day moving average [last month], it gave investors the green light to buy stocks; it said things are OK with the economy," said Mitchell Goldberg, CEO of ClientFirst Strategy. "It also signaled hedge fund managers who got too heavy into cash are now way behind their benchmarks and are now performance-chasing."
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.